Carl Niedbala contributor
Carl Niedbala is COO and co-founder of Founder Shield, a commercial insurance broker.
High-growth companies often set significant goals, knowing full well that the idea of “success overnight” is destined for the storybooks. However, there’s no better time than in the middle of a market downturn to start planning the leap from a private to a public company.
Making the path to an IPO less risky requires strategic planning that takes time. Companies aiming to go public in less than three years must therefore plan to do so now – despite the downturn – in order to have the start needed to navigate the open market.
Let’s examine why this adverse economic climate is ideal for planning an IPO and what to do about it.
Growth investors have recently withdrawn
While some companies are postponing their IPOs, others are catching up and preparing for the time when the open market wants to start investing again.
Carta reports that private fundraising levels have declined in the US since record-breaking 2021. Unsurprisingly, late-stage companies took the brunt of this blow.
Market experts are currently encouraging executives not to pin their hopes on venture capital dry powder, even though there is plenty of it. As the chart below shows, the size of late-stage funding rounds has shrunk.
While few enjoy market downturns, the way this one is evolving can provide insights for late-stage companies that are paying attention. On the one hand, many executives are embracing the message of the Sequoia memo. We can agree with their ideas of putting profits before growth – scaling is different than it used to be, and we need to swallow this jagged pill.
On the downside, cutting costs and giving up hope of fundraising aren’t all doom and gloom. Because where money can be found, an innovative founder will find it. We see it every day; only now the way looks different.
Market downturns lead to valuation corrections
Course correction is a concept that is often discussed in market downturns. The pendulum swings in one direction for a while and then begins its journey to a more balanced standard. In this case, the open market thrived on inflated valuations – most startups were overvalued prior to 2021.
Additionally, many stated that 2021 was a miracle year, especially as VC investments nearly doubled to $643 billion. The US spawned more than 580 new unicorns and recorded over 1,030 IPOs (more than half were SPACs), significantly more than the year before. Only about 170 public listings were welcomed this year.